Shell moves forward on Appomattox development

July 1, 2015

Royal Dutch Shell PLC has greenlighted the Appomattox deepwater development, a project that will include building the company’s eighth and largest deepwater platform in the Gulf of Mexico.

Shell did not release cost estimates for the project, which lies about 80 miles off Louisiana’s coast in 7,200 feet of water. Peak daily production — a combination of oil and natural gas — is estimated at the equivalent of 175,000 barrels of oil. Startup is expected sometime around 2020.

Last year, Shell’s Gulf production was the equivalent to 225,000 barrels of oil per day, said Marvin Odum, director of Shell Upstream Americas. Appomattox opens up more production growth, and the development will be profitable for decades to come.

David Dismukes, executive director of the LSU Center for Energy Studies, said the development likely will cost $2 billion or more.

Covington-based LLOG Exploration Co. and Blackstone Energy Group spent about $2 billion on the Delta House floating production system and related wells. Daily production for Delta House, which lies about 130 miles southeast of New Orleans, will peak at the equivalent of 148,000 barrels of oil.

Dismukes said Shell probably has been conservative with the Appomattox production estimates, and those numbers could be revised upward.

“This is a big deal, and the fact that they’re doing it in this (low oil price) environment that we’re in right now, knowing what we know says two things,” Dismukes said. “One is that when they do these type of projects, they’re over a multi-decade time horizon, and secondly, they can do them pretty cost competitively.”

Shell said design improvements in the tension-leg platform and a reduction in the number of wells required for the development put the break-even cost at about $55 per barrel of Brent crude, the global oil benchmark. Brent crude traded Wednesday at $62.01 per barrel.

Tension-leg platforms float and are kept in place by complex, computer-controlled mooring systems with cables, or tension legs, tied to a foundation on the ocean floor.

Shell owns 79 percent of the project, with the rest held by Nexen Petroleum Offshore USA Inc., which is owned by China National Offshore Oil Co.

Shell has estimated the Appomattox and Vicksburg fields and some nearby discoveries contain the equivalent of more than 800 million barrels of oil.

In a related development, Shell Pipeline Co. LP also made a final investment decision on the Mattox Pipeline, a 24-inch corridor pipeline that will take crude from the Appomattox project to an existing offshore structure in the South Pass area and then connect onshore through an existing pipeline.

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